By now, most claims adjusters and attorneys involved in workers’ compensation and liability settlements are aware of the Medicare Secondary Payer Act (MSP Act) and the potential impact that it may have in certain settlements. An incomplete understanding of the actual obligations however may result in a less than ideal approach for claims handling and settlement. This article reviews the core provisions of the MSP Act and supporting Regulations in order to dispel some of the more common MSP compliance misconceptions and assist you in determining the best MSP compliance approach for your claim.
Core provisions of the MSP Act and Regulations
MSP compliance involves three main components: the resolution of Medicare’s conditional payments; the avoidance of a cost shift of injury related expenses to Medicare in a settlement; and mandatory reporting under Section 111. All of these components are addressed in the MSP Act and supporting Regulations. In addition to the above laws, the Centers for Medicare and Medicaid Services (CMS) has issued Guidance Memos on the MSP Act that have been summarized in Workers’ Compensation Medicare Set-Aside Arrangement (WCMSA) Reference Guides. These Guidance Memos do not carry the weight of law but simply provide CMS’ view of the MSP Act.
Conditional Payments / Section 111
The MSP Act provisions begin at 42 U.S.C. Sections 1395y(b) and focus on Medicare’s status as a Secondary Payer in certain situations. 42 U.S.C. Section 1395y(b)(2)(A) specifically prohibits Medicare from making a payment for any item or service “to the extent that …payment has been made or can reasonably be expected to be made under a workmen’s compensation law or plan of the United States or a State or under an automobile or liability insurance policy or plan (including a self-insured plan) or under no fault insurance.” The exception to this prohibition is found in subparagraph (B) which states that Medicare may make payment if the primary plan described above “has not made or cannot reasonably be expected to make payment with respect to such item or service promptly…” Medicare’s payment is conditioned on reimbursement to the appropriate Medicare Trust Fund.
The obligation to reimburse the Medicare Trust Fund for conditional payments falls on the primary plan and “an entity that receives payment from a primary plan …. if it is demonstrated that such primary plan has or had a responsibility to make payment with respect to such item or service.” Responsibility to make payment may be demonstrated “by a judgment, a payment conditioned upon the recipient’s compromise, waiver, or release (whether or not there is a determination or admission of liability) of payment for items or services included in a claim against the primary plan or the primary plan’s insured, or by other means.”
Chapter 42 of the Code of Federal Regulation Sections 411.20 through 411.54 provide additional details regarding the recovery process for conditional payments in workers’ compensation, liability and no fault claims. Section 111 mandatory reporting obligations, found at 42 U.S.C. 1395y(b)(8), enhance Medicare’s ability to identify Medicare beneficiaries that have received settlements, judgments, awards or other payments from workers’ compensation, no fault insurance or liability insurance plans. By virtue of this reporting, Medicare is then able to seek recovery of conditional payments from a primary plan and avoid making additional payments when a primary plan is available.
Closure of Future Medical in a Settlement
Although the MSP Act and supporting Regulations never mention a Medicare Set-Aside, 42 C.F.R Section 411.46 discusses workers’ compensation commutation and compromise settlements that close out future medical rights. It states that “if a lump-sum compensation award stipulates that the amount paid is intended to compensate the individual for all future medical expenses required because of the work-related injury or disease, Medicare payments for such services are excluded until medical expenses related to the injury or disease equal the amount of the lump-sum payment.” This type of settlement is a commutation settlement.
Disputed workers’ compensation settlements are considered to be lump-sum compromise settlements. Medicare views these settlements as workers’ compensation payments under the MSP Act regardless of their disputed nature. Medicare will not recognize the settlement, if the settlement “appears to represent an attempt to cost shift to Medicare the responsibility for payment of medical expenses for the treatment of a work-related condition.” If the lump-sum compromise settlement does not attempt to shift injury related expenses to Medicare, and the settlement agreement allocates for specific future medical services, “Medicare does not pay for those services until medical expenses related to the injury or disease equal the amount of the lump-sum settlement allocated to future medical expenses.”
Dispelling MSP Compliance Myths
Many cases involve soft tissue types of injuries or injuries that are unlikely to require future care with claimants that return to work. In light of this, parties may not encounter MSP compliance issues on a regular basis. Below are a few of the more common MSP compliance misconceptions, followed by factual clarifications.
Myth 1: A Workers’ Compensation Medicare Set Aside (WCMSA) must be reviewed by CMS when the projected settlement meets CMS’ internal workload review threshold.
Fact: There is no requirement to submit a WCMSA to CMS for review. Medicare review is purely voluntary. Section 1.0 of CMS’ WCMSA Reference Guide (Version 2.7, March 19, 2018) states: “There are no statutory or regulatory provisions requiring that you submit a WCMSA amount proposal to CMS for review. If you choose to use CMS’ WCMSA review process, the Agency requests that you comply with CMS’ established policies and procedures.” Section 4.1.4 further states: “If Medicare’s interests were not ‘reasonably considered’ in the settlement, Medicare will refuse to pay for services related to the WC injury (and otherwise reimbursable by Medicare) until such expenses have exhausted the entire dollar amount of the entire WC settlement.” Although CMS notes the benefit of obtaining the “certainty” associated with CMS reviewing and approving the proposed WCMSA amount, the value of this benefit should be examined on a case by case basis.
As long as the settlement does not appear to cost shift injury-related expenses to Medicare and includes a reasonable allocation for future medical services, Medicare should become primary after the amount of the lump-sum settlement allocated to future medical expenses is properly exhausted (42 C.F.R Section 411.46 (d)(2)). An appropriate allocation within the settlement will show Medicare’s interests were “reasonably considered.”
Myth 2: Medicare has no interest in a settlement when the projected settlement is below CMS’ internal workload review threshold.
Fact: The CMS internal workload review thresholds do not provide parties with a “safe harbor” when it comes to MSP compliance. The settlement should still avoid a cost shift of injury related expenses to Medicare, whether it is done by fully funding the future injury related care or by apportioning the net settlement funds in an objective manner that supports the future medical allocation. Conditional payments must also be investigated and Section 111 reporting may also apply.
Myth 3: All MSAs have to be projected consistently with CMS’ methodology as outlined in the WCMSA Reference Guide.
Fact: CMS’ projection methodology is appropriate when the parties are electing to use the voluntary CMS review process. The traditional CMS projection methodology however may result in over funded future allocations: most people do not undergo diagnostic studies in the “cookie-cutter” frequency used by CMS nor do they maintain the same drug regimen for life.
Alternatives to the traditionally projected CMS reviewed MSA include the non-submitted Evidence-Based Medicine allocation that projects care based on ODG guidelines and the recommendations of the treating physicians, the compromise MSA allocation that is carved out of the net settlement in a disputed claim and allocations that are limited based upon the underlying State law. These alternatives to the traditionally projected CMS reviewed MSA are both legally and medically defensible ways to give Medicare’s interests “reasonable consideration” in the settlement.
Myth 4: Medicare has no interest in a liability settlement.
Fact: The MSP Act and supporting Regulations identify liability plans as plans that are primary to Medicare in certain situations. (42 U.S.C. Section 1395y(b)(2)(A)). In light of this, Medicare has the right to seek recovery of conditional payments made in connection with liability settlements. Liability settlements are also subject to mandatory Section 111 reporting.
Although 42 C.F.R Section 411.46 discusses the closure of future medical rights in lump-sum commutation or compromise settlement in the context of workers’ compensation settlements, the same analysis may be considered in determining the approach for a liability settlement. Liability settlements would generally fall into the compromise settlement category. Given the language of the MSP Act and Regulations, it would be prudent for parties in a liability settlement to avoid the appearance of an attempt to cost shift to Medicare the responsibility for payment of medical expenses for the treatment of the injury related condition. An apportionment of the negotiated settlement funds in an objectively reasonable manner would reduce the risk that Medicare may deny future injury related care.
A review of CMS’ statements and Guidance Memos further supports the conclusion that Medicare views itself as having an interest in liability settlements. This view goes back to the May of 2011 memo issued by Sally Stalcup, the MSP Regional Coordinator for CMS Region 6. She wrote that “Medicare’s interests must be protected; however CMS does not mandate a specific mechanism to protect those interests. The law does not require a “set-aside” in any situation. The law requires that the Medicare Trust Funds be protected from payment for future services whether it is a Workers’ Compensation or liability case. There is no distinction in the law.”
On September 29, 2011, CMS issued a Guidance Memo on liability MSAs. It states that the agency will consider Medicare’s interests regarding future medical in the liability settlement to be satisfied upon procurement of a certification from the beneficiary’s treating physician that the beneficiary’s treatment has concluded and no future care will be required. Other actions taken by CMS, such as the Advance Notice of Proposed Rulemaking for liability MSAs put out in June of 2012, the requirement that the new Workers’ Compensation Review Contractor be able to review liability MSAs, and CMS’ notice of system updates to allow for the identification of liability MSAs and no fault MSAs in MSP records all suggest that at some point, CMS may be willing to provide a voluntary review of a liability MSA. Despite speculation that the new voluntary liability MSA review process would be in place by July of 2018, this has not occurred.
To date, MSP compliance caselaw generally address issues pertaining to the reimbursement of conditional payments, as well as standing to bring a Private Cause of Action. The issue of a liability MSA was however discussed in the Silva v Burwell case, 2017 U S Dist LEXIS 195032 ( D.N.M. November 28, 2017). This case arose in connection with a medical malpractice settlement agreement between Mr. Silva and the hospital Defendants. The Hospital Defendants wanted Mr. Silva to establish an MSA in connection with his settlement or in the alternative secure a federal court order finding that one was not needed. Since CMS declined to state its position on this, Mr. Silva brought an action under the Declaratory Judgement Act against Defendants Burwell, the Secretary of the US Department of Health and Human Services, CMS and the US Department of Health and Human Services requesting a finding that no liability MSA is needed in the case.
The Court reviewed the MSP Act and noted that although CMS had promulgated regulations addressing MSA arrangements in the context of workers’ compensation cases and established a review process, it had not done so in liability claims. It further stated that there is no federal law or regulation that requires CMS to provide its position on the liability MSA, although the uncertainty associated with this was detrimental to the settlement process. The Court dismissed the claim pursuant to Defendant Burwell’s Motion, finding a lack of subject matter jurisdiction.
Although CMS has not provided the same degree of “guidance” in the area of liability MSAs as in the area of workers’ compensation MSAs, MSP compliance obligations are determined by the MSP Act. The MSP Act clearly identifies liability plans as primary plans in certain situations in which Medicare is a secondary payer.
Parties should consider Medicare’s interests when settling workers’ compensation and liability claims. As noted earlier, the three main components of MSP compliance involve the resolution of conditional payments, the avoidance of a cost shift of future injury related care to Medicare, and Section 111 reporting.
In settlements involving a Medicare beneficiary, it is prudent to investigate and address conditional payments made under traditional Medicare Part A and B plans as well as any potential payments made by Medicare Advantage Plans under Medicare Parts C and D. Section 111 mandatory reporting obligations also have to be met.
When it comes to avoiding a cost shift of future injury-related Medicare covered expenses, there are alternatives to the traditional WCMSA that is reviewed by CMS. Although the traditional CMS reviewed WCMSA has its benefits, non-submitted MSAs that avoid the appearance of a cost shift of injury related expenses to Medicare may also play a role in your MSP compliance strategy. The non-submitted MSA may be one that is projected based on evidence based medicine guidelines, one that is apportioned from the net settlement funds in a disputed claim, or one that is based on the limitations imposed by the underlying State law.
Parties reaching liability settlement agreements may also benefit from apportioning some of the net settlement funds for future injury related Medicare covered treatment. As long as the apportionment is done in a reasonable manner without the appearance of a cost shift of injury related Medicare covered expenses, Medicare should become primary upon proper exhaustion of the allocated funds.
It is important to recognize that your MSP compliance obligations are determined by a combination of the underlying state law, MSP Act and Regulations, and not by CMS’ Guidance Memos. There is also more than one way to give Medicare’s interests reasonable consideration in a settlement. Our team of experienced MSP compliance attorneys is available to assist in determining the best MSP compliance option for you in any given case. We also partner with you to develop and implement internal MSP compliance programs. Additional information is available upon request.
*1 See 42 C.F.R. Section 411.46 (b)(2)
*2 See 42 C.F.R. Section 411.46 (d)(2)